Yes it worked with 2005, everything worked fine until I installed vs.net 2008. One thing though, I had vs.net 2008 beta installed and uninstalled it before installing vs.net 2008.
Now I've uninstalled .net 2.0, 3.0, 3.5. And removed the v2.0.50727 folder to get it working again. My .net 1.1 project is critical so I can't have it "not working"...